Chile suspended trade negotiations with Peru on Friday on account of a law passed by Peru that claims sovereignty over 35,000 square km of offshore waters which Chile says belong to it, a foreign ministry official said.

Carlos Furche, head of international economic relations for the ministry said, "we have considered it prudent to postpone negotiations for a better time, even though they were at a very advanced stage."

He cited the "well-known difficulties" between the two countries as the reason for the freeze.

On Thursday Peru's Congress unanimously approved a bill that claims sovereignty over a sea area covering 35,000 square km of the Pacific Ocean along the South American coastline, which is now controlled by Chile. Peruvian President Alejandro Toledo immediately signed it into law.

Meanwhile, Chilean President Ricardo Lagos Friday pledged a diplomatic resolution to the dispute and chastised the media for sensationalizing.

"The diplomatic channels are open and we have to do the diplomatic thing," Lagos said, adding that the media had fuelled the conflict unnecessarily.

Regarding the issue, Peruvian President Toledo said at the sidelines of the fourth Summit of the Americas that "the ball is in play and we're clear of our rights ... but this mustn't damage our relationship with Chile."

Chile and Peru have strong business ties and many companies have cross-border investments, especially in mining, the backbone of both economies, but their relations are marred by mutual distrust that has its roots in a 19th century war in which Peru lost a swath of mineral-rich southern coast to Chile.

According to the Chilean government, Chile's border with Peru was already resolved in the 1952 and 1954 treaties. But Peru claimed that it never signed any maritime demarcation pact with Chile.

Source: Xinhua